Coronavirus: temporary protection of lease and  rent payment subsidy

Rent payment subsidy

The National Council of the Slovak Republic approved a new state contribution, the so-called rent payment subsidy (hereinafter referred to as the “Subsidy”) by adopting an amendment to Act no. 71/2013 Coll. on the provision of subsidies within the competence of the Ministry of Economy of the Slovak Republic, as amended, and on the amendment of Act no. 62/2020 Coll. on certain emergency measures in connection with the spread of the dangerous contagious human disease COVID-19 and in the judiciary and amending certain laws as amended by Act no. 92/2020 Coll. (hereinafter referred to as the “Subsidy Act”).

The purpose of the Subsidy is primarily to mitigate the effects of measures taken to prevent the negative consequences of COVID-19 disease on business entities. The provisions of the Subsidy Act also apply mutatis mutandis to subleases.

Conditions for providing the Subsidy

1. the existence of a lease agreement or similar agreement under the law of another state (hereinafter collectively referred to as “Lease Agreement“);
2. the existence of the landlord´s right based on the Lease Agreement to pay the rent;
3. the rent must be agreed in cash;
4. the existence of the tenant´s right to use the leased object from 1 February 2020 at the latest – in our opinion, the text formulation used in the Subsidy Act does not allow to provide a Subsidy for the rent payment for leased object, which the tenant started to use only after 1 February 2020;
5. the use of the leased object for the agreed purpose was prevented in connection with the measures taken to prevent the negative consequences of COVID-19, either:
   • by closing the leased object;
   • by interruption of teaching in schools and school facilities;
   • by substantial restriction of public ban in leased object;

(hereinafter together as “Difficult use of the leased object“).

The Subsidy Act also defines what is considered as leased object for the purposes of providing the Subsidy, namely:

1. room or part of a room or set of rooms which are by decision of the building authority intended for purposes other than housing and in which the tenant simultaneously sells goods or provides services to final consumers, including related service areas and storage areas;
2. marketplace.

It is not possible to provide the Subsidy for any other leased objects that do not fall under the above-mentioned definition.

Agreement between the landlord and the tenant to reduce the rent

Due to the long-term absence of state aid in the field of lease, in practice, there could have occurred a situation where the tenant and the landlord agreed to change the Lease Agreement, for example by reducing the rent.

The Subsidy Act does not omit changes to the Lease Agreements on which the tenants and landlords could have agreed, while stipulating that changes to the Lease Agreements made after 12 March 2020 are not taken into account for the purposes of providing the Subsidy.

In our opinion, the wording used in the Subsidy Act means that if the tenant and the landlord have agreed to change the Lease Agreement (for example reduce rent) at any time after 12 March 2020 by, for example, 50% of the original amount, for the purposes of providing the Subsidy, the amount of the originally agreed rent will be assessed, i.e. before reducing it by 50%.

Rent

For the avoidance of any doubt, the Subsidy Act regulates which lease-related payments are not included under the term rent, and thus which payments cannot be included in the amount for which the Subsidy should be provided. Rent within the meaning of the Subsidy Act is not:

1. payments for services usually associated with the lease – in case it is not possible to separate the amount of these payments from the amount of rent, the Subsidy Act stipulates that the amount of this payment is 5% of the rent;
2. turnover component (in case the rent is determined by turnover).

Amount of the Subsidy

The Subsidy Act regulates the method of determining the amount of the Subsidy, which is equal to the amount of the discount that the landlord will provide to the tenant from the rent, but not more than 50% of the rent for the period of Difficult use of the leased object.

The above-mentioned scheme in practice means that if the landlord agrees with the tenant on a 50% discount on the rent, the state will provide a subsidy also in the amount of 50% - in this case, the tenant will not have to pay any part of the rent to the landlord. However, if the landlord and the tenant agree on a 40% discount on the rent, the state will also provide a Subsidy in the amount of 40% and the tenant will have to pay the landlord the difference of the remaining 20% of the rent.

The tenant will be therefore obliged to pay the landlord a part of the rent, which will not be paid by the Subsidy or covered by the landlord´s discount. The tenant will be able to spread the payment of this remaining part of the rent into a maximum of 48 equal monthly installments, the maturity of which will always be according the Subsidy Act on the 15th day of the relevant calendar month. The first installment of the remaining part of the rent will have to be paid by the tenant to the landlord from the 15th day of the calendar month following the month in which the emergency situation in connection with the COVID-19 disease ends. Please note, that the Subsidy Act allows the landlord and the tenant to agree on a different maturity.

Method of submitting the application for the Subsidy and its granting

Although the Subsidy is provided to pay the rent to the tenant (i.e. the aid recipient is the tenant), it can be applied for exclusively by the landlord (natural / legal person, entrepreneur / non-entrepreneur) via a dedicated electronic form, which should be published on the website of the Ministry of Economy of the Slovak Republic (hereinafter referred to as “Form“). The form signed by the authorized signature of the landlord and the tenant according to a special act (e-Government Act) will have, for the purposes of the application, the effects of an agreement between the landlord and the tenant on granting a rent discount (it is therefore not necessary to attach a separate agreement to the form).

The landlord thus submits the application for the Subsidy on behalf of the tenant, but on his own account (i.e. on the landlord´s account). However, the tenant is obliged to provide the landlord with immediate cooperation upon request when submitting the application. At the same time, the Subsidy Act regulates in detail the requirements for the application for a Subsidy.

After submitting a correctly completed application, the Ministry of Economy of the Slovak Republic will transfer the Subsidy to the landlord based on the notification on the approval of the Subsidy. This notification will be sent electronically to both the landlord and the tenant.

The Subsidy Act specifically regulates the conditions pursuant to a special act (the Act on Budgetary Rules of Public Administration), which for the purposes of the Subsidy are considered fulfilled as well as those which fulfillment must be proved by the declaration. In case the amount of the Subsidy will exceed the amount of EUR 100,000 according to a special act (Act on the Register of Public Sector Partners), the ultimate beneficiary owner must be stated in the application .

In case of  the falsity of the declaration or the falsity of the information about the ultimate beneficiary owner, the landlord will be obliged to return the provided Subsidy.

Payment of rent

The Subsidy Act also does not omit a situation where the tenant has already paid to the landlord the entire rent or part of the rent for the period of the Difficult use of the leased object, for which he would be entitled to the Subsidy. In such case, the right to provide the Subsidy does not expire.

In such case, the Subsidy may be provided for a period in the future for which the landlord will provide a discount and which will be equivalent to the period of the Difficult use of the leased object for which the tenant has already paid the rent. The method of determining the amount of the Subsidy in such case is the same as in the case when the rent was not paid at all (see the text above).

No rental discount agreement

Accession to the agreement on the rental discount is on the mutual agreement of the landlord with the tenant. Therefore, it cannot be ruled out that the landlord and the tenant will not reach an agreement.

Pursuant to the Subsidy Act, the tenant is in such case obliged to pay the full amount of rent for the entire period of the Difficult use of the leased object in a maximum of 48 equal monthly installments, with a due date always on the 15th day of the respective calendar month (starting on the 15th day of the calendar month following the calendar month in which the COVID-19 emergency ended). However, even in this case, the Subsidy Act allows the landlord and the tenant to agree on a different maturity.

If the tenant has already paid entire rent or part of the rent and the landlord has not agreed to a rental discount agreement, the Subsidy Act allows the tenant to pay the rent for the same length of time as the period of Difficult use of the leased object under the same conditions as when the tenant did not pay the rent at all (see the text above).

Temporary protection of lease

Temporary protection of lease adopted by the amendment to Act no. 62/2020 Coll. on certain emergency measures in connection with the spread of dangerous infectious human disease COVID-19 and in the judiciary and amending certain laws (hereinafter referred to as the “Temporary Protection Act”) provides tenants (entrepreneurs and non-entrepreneurs) with protection in the case of late payments of rent and other lease-related payments due to circumstances resulting from the spread of the dangerous contagious human disease COVID-19.

The Temporary Protection Act does not specify what is meant by rent and other lease-related payments. In the broadest sense of the word, in our opinion, it is possible to understand under rent all forms of rents and under other lease-related payments all payments that are directly linked to the existence of the lease - such as so-called marketing or service charges, which are typical in particular for the lease of premises in shopping centers (for the purposes of this newsletter, rent and other lease-related payments, hereinafter collectively referred to as "Rent").

Pursuant to the Temporary Protection Act, temporary protection applies to lease of real estates, including lease of an apartments or non-residential spaces, which during the temporary protection of lease the landlord cannot unilaterally terminate until 31 December 2020, if the tenant is in delay with the Rent payment due in the period from 1 April 2020 to 30 June 2020. However, such delay must be caused solely by the circumstances resulting from the spread of the dangerous contagious human disease COVID-19.

Conditions for granting temporary protection of lease

In order to provide temporary protection, the tenant must meet the following conditions required by the Temporary Protection Act:

1. the Rent with which he is in delay must be due in the period from 1 April 2020 to 30 June 2020 – this condition can cause a problem in practice, if the tenant and the landlord have agreed in the contract on the payment and maturity of the Rent monthly in advance. Please note that when assessing the maturity, the decisive factor is the agreement in the contract and not the maturity stated, for example, on the invoice. (Example: The tenant and the landlord have agreed in the contract on the payment of Rent always by the 15th day of the calendar month preceding the month for which the Rent is paid. In this case the Rent for April 2020 would then be due by 15 March 2020. Its maturity in March 2020, i.e. one month in advance means that the Rent for April 2020 does not meet the condition for the provision of temporary protection, as its maturity was not in the period from 1 April 2020 to 30 June 2020.

1. the delay in the payment of the Rent must be solely due to circumstances resulting from the spread of the dangerous contagious human disease COVID-19;
2. the reason for delay according to letter b. above, the tenant must sufficiently certify to the landlord.

Please note that another reason for unilateral termination of the lease by the landlord, i.e. any reason different from the circumstances resulting from the spread of dangerous contagious human disease COVID-19, the Temporary Protection Act does not prohibit.

The landlord can thus unilaterally terminate the lease with the tenant for any other (legal / contractual) reason, even during the temporary protection of the lease.

At the same time, in our opinion, it follows from the wording of the Temporary Protection Act , that temporary protection of lease is not provided for the period before 1 April 2020 and after 30 June 2020. Failure to pay the Rent for a period outside the period protected by Temporary Protection Act  may thus result in a unilateral termination of the lease by the landlord, even if the tenant is in delay due to circumstances resulting from the spread of dangerous contagious human disease COVID-19.

The Temporary Protection Act also does not in any way regulates the issue of the landlord's claims from liability for the tenant's delay in paying the Rent during the period protected by Temporary Protection Act, e.g. interest on arrears. Therefore, absence of such special regulation, in our opinion, means unaffected claims of the landlord from the liability for the tenant's delay in paying the Rent during the period protected by Temporary Protection Act also for the period of providing temporary protection of the lease (i.e. for the period from 1 April 2020 to 30 June 2020).

    Please note

The Temporary Protection Act in its current wording does not allow the "forgiveness" of the Rent, but only allows the "postponement" of its payment. Ultimately, however, the tenants will, under the current legislation, be obliged to pay the Rent to the landlord for the period of providing temporary protection of the lease.

After the specified time, i.e. after 31 December 2020, the tenant loses protection under the Temporary Protection Act . The landlord will then be entitled to unilaterally terminate the lease due to delay in paying the Rent for the period from 1 April 2020 to 30 June 2020, regardless of the reason for the delay.

In case you are interested in providing more detailed information or if otherwise needed (e.g. ensuring communication with your tenant / landlord in connection with the temporary protection of lease under the Temporary Protection Act, etc.), we are fully available.